EBK CORPORATE FINANCE
4th Edition
ISBN: 9780134202785
Author: DeMarzo
Publisher: VST
expand_more
expand_more
format_list_bulleted
Videos
Textbook Question
Chapter 9, Problem 9P
In 2006 and 2007, Kenneth Cole Productions (KCP) paid annual dividends of $0.72. In 2008, KCP paid an annual dividend of $0.36, and then paid no further dividends through 2012. KCP was acquired at the end of 2012 for $15.25 per share.
- a. What would an investor with perfect foresight of the above been willing to pay for KCP at the start of 2006? (Note: Because an investor with perfect foresight bears no risk, use a risk-free equity cost of capital of 5%.)
- b. Does your answer to (a) imply that the market for KCP stock was inefficient in 2006?
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Only type answer and give answer fast i will give you upvote
Blue Corp. is evaluating an extra dividend versus a share repurchase. In either case, $5,500 would be spent. Current earnings are $1.11 per share and the
stock currently sells for $42 per share. There are 2,500 shares outstanding. Ignore taxes and other imperfections.
If Blue Corp. pays a dividend, what will be the dividend per share? After the dividend is paid, how many shares will be outstanding and what will the price per
share be? Enter your answers rounded to 2 DECIMAL PLACES.
NOTE: Fractional shares are possible (Ex. 0.49 shares)
Dividend 2.2
☑
Correct response: 2.2±0.01
Shares outstanding = 2500
Correct response: 2,500
Stock price = 39.8
Correct response: 39.8±0.01
Click "Verify" to proceed to the next part of the question.
After the $2.2 dividend, the price falls to $39.8 per share. What are earnings per share (EPS) and the price earnings (P/E) ratio? Enter your answers
rounded to 2 DECIMAL PLACES.
EPS =
Number
P/E RatioNumber
Click "Verify" to proceed to the next part of the…
The Nasdaq 100 Trust (QQQQ) opened 2005 at $40 per share and closed 2005 at $41.50 per share. It paid a dividend of $0.14 for the year. Jazy sold 1000 shares short at the beginning of 2005 and closed her position at the close of 2005. Her broker required a 60% margin deposit. Ignoring the dividend, theoretically what was the maximum dollar amount Jazy might have lost?
Chapter 9 Solutions
EBK CORPORATE FINANCE
Ch. 9.1 - How do you calculate the total return of a stock?Ch. 9.1 - Prob. 2CCCh. 9.2 - In what three ways can a firm increase its future...Ch. 9.2 - Under what circumstances can a firm increase its...Ch. 9.3 - How does the growth rate used in the total payout...Ch. 9.3 - Prob. 2CCCh. 9.3 - Prob. 3CCCh. 9.4 - Prob. 1CCCh. 9.4 - What implicit assumptions are made when valuing a...Ch. 9.5 - State the efficient market hypothesis.
Ch. 9.5 - Prob. 2CCCh. 9 - Assume Evco, Inc., has a current price of 50 and...Ch. 9 - Anle corporation has a current price of 20, is...Ch. 9 - Suppose Acap Corporation will pay a dividend of...Ch. 9 - Prob. 4PCh. 9 - NoGrowth Corporation currently pays a dividend of...Ch. 9 - Summit Systems will pay a dividend of 1.50 this...Ch. 9 - Prob. 7PCh. 9 - Canadian-based mining company EI Dorado Gold (EGO)...Ch. 9 - In 2006 and 2007, Kenneth Cole Productions (KCP)...Ch. 9 - DFB, Inc., expects earnings at the end of this...Ch. 9 - Cooperton Mining just announced it will cut its...Ch. 9 - Procter and Gamble (PG) paid an annual dividend of...Ch. 9 - Colgate-Palmolive Company has just paid an annual...Ch. 9 - Prob. 14PCh. 9 - Halliford Corporation expects to have earnings...Ch. 9 - Prob. 16PCh. 9 - Maynard Steel plans to pay a dividend of 3 this...Ch. 9 - Prob. 18PCh. 9 - Prob. 19PCh. 9 - Prob. 20PCh. 9 - Prob. 23PCh. 9 - Prob. 24PCh. 9 - Prob. 25PCh. 9 - Suppose that In January 2006, Kenneth Cole...Ch. 9 - In addition to footwear, Kenneth Cole Productions...Ch. 9 - You read in the paper that Summit Systems from...Ch. 9 - Prob. 31PCh. 9 - Prob. 32PCh. 9 - Prob. 33P
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Kenneth Cole Productions (KCP) was acquired in 2012 for a purchase price of $15.02 per share. KCP had 18.4 million shares outstanding, $46.8 million in cash, and no debt at the time of the acquisition. a. Given a weighted average cost of capital of 10.9%, and assuming no future growth, what level of annual free cash flow would justify this acquisition price? b. If KCP's current annual sales are $475 million, assuming no net capital expenditures or increases in net working capital, and a tax rate of 40%, what EBIT margin does your answer in part (a) require? a. Given a weighted average cost of capital of 10.9%, and assuming no future growth, what level of annual free cash flow would justify this acquisition price? The level of annual free cash flow that would justify this acquisition price is $ million. (Round to two decimal places.)arrow_forward8) Annalists of UBS Group (offers both wealth management and asset management services) believe the price for shares of TopBuild Corp. will go down in the near future. It was decided to sell short 10,000 shares of TopBuild Corp. at the current market price of USD 257 per share. The initial margin requirement is 60 percent. Which of the following statement is the most accurate regarding the proceeds from the short sale and the margin requirement that UBS Group is subject to on this short sale? Select one: He will need to leave the proceeds from the short sale USD 2,570,000 and contribute USD 1,542,000 as margin. He will only need to contribute USD 1,542,000 as margin. He will need to leave the proceeds from the short sale USD 2,570,000 and contribute USD 1,028,000 as margin. He will only need to contribute USD 1,028,000 as margin. He will only need to leave the proceeds from the short sale (USD 2,570,000) as deposit and does not need to contribute any…arrow_forwardIf iOS Corp. issues an additional $8 million of debt and uses this money to retire common stock, what will be the expected return on the stock? Assume that the change in capital structure does not affect the risk of the debt, and recall that the WACC under the initial capital structure is 13.85%. Enter your answer as a percentage. Do not include the percentage sign in your answer. Enter your answer rounded to 2 DECIMAL PLACES. TE= Number Click "Verify" to proceed to the next part of the question.arrow_forward
- . In June 2022, Wild Company had excess cash that would not be needed until March 1, 2022. Management decided to invest the money in a short-term investment in FVTPL financial assets. Wild owned no investment financial assets before June 2022. The following transactions relate to these investments: June 20 Purchase 10,000 shares of West Corporation stock. The price paid was P104,500. September 2 Received a cash dividend of P1.20 per share on West stock. October 5 Sold 4,000 shares of West stock at P10.00 per share. Paid a selling commission of P400. December 31 The market price of West stock was P11.00. Required: Compute the realized gain or loss on October 5, 2022. Compute the amount of unrealized gain or loss that will be reported to income statement for 2022. Assume that the fair value of the investment on December 31, 2023 is P14/share. Compute the amount of unrealized gain or loss that will be reported to income statement for 2023.arrow_forwardTaco Time Corporation is evaluating an extra dividend versus a share repurchase. In either case, $22,960 would be spent. Current earnings are $3.80 per share, and the stock currently sells for $92 per share. There are 4,100 shares outstanding. Ignore taxes and other imperfections. What will the company’s EPS and PE ratio be under the two different scenarios?arrow_forwardIDX Technologies is a privately held developer of advanced security systems based in Chicago. As part of your business development strategy, in late 2008 you initiate discussions with IDX's founder about the possibility of acquiring the business at the end of 2008. Estimate the value of IDX per share using a discounted FCF approach and the following data: • Debt: $23 million • Excess cash: $106 million • Shares outstanding: 50 million Expected FCF in 2009: $47 million Expected FCF in 2010: $57 million • Future FCF growth rate beyond 2010: 5% ● Weighted-average cost of capital: 9.4% The enterprise value in 2008 is $ million. (Round to the nearest integer.)arrow_forward
- A sophisticated investor, B. Graham, sold 250 shares short of Amwell, Inc. at $31 a share. The price of the stock subsequently fell to $26 before rising to $46 at which time Graham covered the position (that is, closed the short position). What was the percentage gain or loss on this investment? Use a minus sign to enter the amount as a negative value. Round your answer to two decimal places.arrow_forwardTaco Time Corporation is evaluating an extra dividend versus a share repurchase. In either case, $27,000 would be spent. Current earnings are $2.70 per share, and the stock currently sells for $96 per share. There are 4,500 shares outstanding. Ignore taxes and other imperfections. What will the company's EPS and PE ratio be under the two different scenarios? Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. EPS PE Ratio Extra Dividend Share Repurchasearrow_forwardThe common stock and debt of Northern Sludge are valued at $66 million and $34 million, respectively. Investors currently require a return of 15.6% on the common stock and 8.1% on the debt. If Northern Sludge issues an additional $17 million of common stock and uses this money to retire debt, what happens to the expected return on the stock? Assume that the change in capital structure does not affect the risk of the debt and that there are no taxes (do not round intermediate calculations. Enter your answer as a percent rounded to two decimal places).arrow_forward
- Bullant Inc. has decided to go public and has sold 2 million of its shares to its underwriter for $20 per share. The underwriter then sold them to the public for $22 each. Bullant also encountered $0.5 million in administrative fees. Soon after the issue, the stock price rose to $25. Find Bullant s total cost of this issue including any underpricing.arrow_forwardBlaxo Balloons manufactures and distributes birthday balloons. At the beginning of the year Blaxo's common stock was selling for $19.93 but by year end it was only $17.82. If the firm paid a total cash dividend of $1.98 during the year, what rate of return would you have earned if you had purchased the stock exactly one year ago? What would your rate of return have been if the firm had paid no cash dividend? Question content area bottom Part 1 The rate of return you would have earned is enter your response here%. (Round to two decimal places.)arrow_forwardRST Inc. wants to raise $30M in an IPO and chose Soldman Gachs to underwrite the offering. The two sides agreed that Soldman Gachs would sell 5M shares to the public and provide $30M in net proceeds to RST. The out of pocket expenses incurred by Soldman Gachs were $500,000. What profit or loss did Security Brokers incur if the issue were sold to the public at $8 / share? What about at $5.50 / share?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Dividend explained; Author: The Finance Storyteller;https://www.youtube.com/watch?v=Wy7R-Gqfb6c;License: Standard Youtube License